DOW 17685.73 -2.09 (-0.01%), NASDAQ 4675.71 -26.73 (-0.57%),
S&P500 2048.72 -3.08 (-0.15%)
It’s really hard to be bullish on the market now, but this market is a lot more resilient than I give it credit for. However, divergence plagues the market and it’s difficult to get a clear handle on its movement.
Tomorrow will see the release of the FOMC Minutes in the afternoon session, and while usually a non-event, I’ll expect market participants to look for hints on the Fed’s opinion on the global economy and on the Fed’s stand on interest rates. Caution is the name of the game as we move ahead.
Direction for Wednesday 19 Nov 2014: DOWN▼
At the low the S&P500 was almost off by 10 points, but the market rebounded into the lunch hour and the DOW actually went into the green. The FOMC minutes revealed nothing particularly new, and the market reaction was ultimately unclear.
The Russell 2000 and NASDAQ lagged throughout the whole session, which is suggestive that this rally is over.
The broader market space remains in consolidation, with the USD Index stagnating with the equity space, and Crude Oil seems to be following suit now as well…
Market Summary
from Briefing.com
Industry Watch
Strong: Consumer Discretionary, Consumer Staples
Weak: Health Care, Financials, Industrials, Technology, Telecom Services
Other Market Moving Factors
Small caps lag
Target (TGT) beats Q3 estimates, but issues somewhat cautious guidance range for Q4
[BRIEFING.COM] The major averages ended the midweek session on a lower note with Tuesday’s leader—Russell 2000—pacing the retreat. The small-cap index lost 1.1% while the S&P 500 surrendered 0.2% with seven sectors finishing in the red.
The benchmark index slumped at the start due to notable losses among several heavily-weighted sectors. However, the S&P 500 was able to pull away from its late-morning low thanks to relative strength in consumer discretionary (+0.5%), consumer staples (+0.4%), and energy (+0.6%).
Although the trio helped the S&P 500 recover from its low, the index could not complete its comeback as industrials (-0.3%), technology (-0.6%), and health care (-0.5%) weighed. The index was able to briefly kiss the flat line after minutes from the October FOMC meeting crossed the wires, but that move was retraced as the dust settled and it became clear the minutes did not introduce anything new into the discussion. Instead, the minutes reminded investors for the umpteenth time that the central bank intends to remain data-dependent when deciding the appropriate timing for the first rate hike.
Treasuries followed a similar intraday pattern. The 10-yr note spiked to highs immediately after the release, but returned to lows shortly thereafter. As a result, the benchmark 10-yr yield rose four basis points to 2.36%.
As mentioned earlier, only three sectors managed to spend the bulk of the session in the green. Energy (+0.6%) ended in the lead even as crude oil remained volatile during the day. WTI crude ended the pit session lower by 0.2% at $74.48/bbl.
Elsewhere, the two consumer sectors were underpinned by retailers after Staples (SPLS 13.92, +1.16), Target (TGT 72.48, +4.97), and Lowe’s (LOW 62.26, +3.73) reported one-cent beats. The three soared between 6.4% and 9.1% while the SPDR S&P Retail ETF (XRT 91.04, +0.67) added 0.7%.
Retail names notwithstanding, finding areas of relative strength proved challenging. The top-weighted technology sector (-0.6%) ended among the laggards due to broad-based losses. Chipmakers settled in-line with the sector as the relative weakness among small caps weighed on sentiment in other high-beta areas.
Also of note, biotechnology tried to resists the pressure, but the iShares Nasdaq Biotechnology ETF (IBB 294.21, -1.04) slipped to lows by the close. The ETF settled lower by 0.4% after being up near 0.6% intraday. As for health care, the top-weighted countercyclical group never took the biotech bait and spent the day near its low.
Participation was in-line with long-term trends with roughly 720 million shares changing hands at the NYSE floor.
Economic data was limited to MBA Mortgage Index and Housing Starts/Building Permits:
Housing starts declined 2.8% in October from an upwardly revised 1.038 million (from 1.017 million) to 1.009 million while the Briefing.com consensus pegged the reading at 1.025 million
Since June, housing starts have followed a sawtooth pattern, which has continued with the October decline
Despite the headline miss, single-family construction, which generally follows stable trends, increased 4.2% to 696,000, which was the highest reading since November 2013
Building permits slipped to a seasonally adjusted annualized rate of 1.08 million in October from an unrevised 1.031 million for September, while the Briefing.com consensus expected permits to come in at 1.04 million.
The weekly MBA Mortgage Index jumped 4.9% to follow the previous decline of 0.9%
Global Markets
Asia
Asian Markets Close: Nikkei -0.3%, Hang Seng -0.7%, Shanghai -0.2%
Markets dipped across most of Asia.
The Bank of Japan opined overnight, opting to keep policy on hold. The central bank lowered its inflation assessment to 1% (1.25% previous), causing buyers to run USDJPY to a fresh seven-year high of 117.565 amid speculation further asset purchases will be needed to reach the 2% target.
The breakdown in iron ore prices to the lowest levels since June 2009 continues to pose problems for Australia.
Japan’s Nikkei (-0.3%) eased off seven-year highs. Heavyweights Softbank and Fast Retailing were drags, shedding 1.6% and 1.2%, respectively.
Hong Kong’s Hang Seng (-0.7%) saw selling for a third straight session. Hong Kong Exchanges has been weak since Monday’s Stock Connect launch, giving up another 3.4%.
China’s Shanghai Composite (-0.2%) slipped for a third day in a row. Financials saw some selling pressure with Industrial & Commercial Bank of China losing 0.8%.
India’s Sensex (-0.5%) slid off all-time highs. Materials names were weak as Tata Steel and Sesa Sterlite fell 3.2% and 2.7%, respectively.
Australia’s ASX (-0.6%) pressed to a one-month low. Miners remained under pressure as BHP Billiton sank 1.5% and Rio Tinto gave back 2.5%.
Regional Decliners: Vietnam -1.0%…Thailand -0.2%…Philippines -0.1%…South Korea UNCH
Regional Advancers: Malaysia +0.3%…Indonesia +0.5%…Singapore +0.6%…Taiwan +1.2%
Fx: USDCNY unch @ 6.1208…USDINR +30 pips @ 62.01…USDJPY +75 pips @ 117.60…AUDUSD -80 pips @ .8640
Europe
UK’s FTSE: -0.2%
Germany’s DAX: + 0.2%
France’s CAC: + 0.1%
Spain’s IBEX: -0.5%
Portugal’s PSI: 0.0%
Italy’s MIB Index: + 0.1%
Irish Ovrl Index: + 1.1%
Greece ASE General Index: + 4.2%
Economic Data
from Briefing.com
Economic Data is listed as Actual vs Consensus. Prior Data is given in brackets. If Prior Data has been revised, revised data will be given instead, together with an indication whether it was revised upward or downward
MBA Mortgage Index – 07:00 : 4.9% (Prior -0.9%)
Housing Starts – 08:30 : 1009K vs 1025K (Prior 1038K▲)
Building Permits – 08:30 : 1080K vs 1040K (Prior 1031K▲)
Crude Inventories – 10:30 : 2.608M (Prior -1.735M)
FOMC Minutes – 14:00
HOUSING STARTS & BUILDING PERMITS
Highlights
Housing starts declined 2.8% in October from an upwardly revised 1.038 mln (from 1.017 mln) in September to 1.009 mln. The Briefing.com consensus pegged housing starts at 1.025 mln for October.
Key Factors
Since June, housing starts have followed a sawtooth pattern. The decline in October continued that trend.
Even though the number of housing starts failed to meet expectations, we would not classify the report as disappointing.
Single-family construction, which generally follows stable trends, increased 4.2% to 696,000 in October from 668,000 in September. That was the most single-family home starts since 710,000 were started in November 2013.
The increase in the November reading of the NAHB homebuilder sentiment indicator 58 from 54 in October suggests single-family starts should continue to rise next month.
Multifamily starts declined 15.4% from 370,000 in September to 313,000 in October. Large swings in multifamily construction are not unusual and we would expect the pendulum to swing back in November.
The number of homes currently under construction increased 1.4% to 802,000. That is the most homes currently under construction since December 2008 and will put upside pressure on fourth quarter GDP growth.
Big Picture
A surge in the typically stable single-family construction sector bodes well for overall growth in the construction sector.
FOMC MINUTES
See full release of FOMC Minutes here.
“Some participants preferred to eliminate language in the statement indicating that the current target range for the federal funds rate would likely be maintained for a “considerable time” after the end of the asset purchase program. These participants were concerned that such a characterization could be misinterpreted as suggesting that the Committee’s decisions would not depend on the incoming data. However, other participants thought that the “considerable time” phrase was useful in communicating the Committee’s policy intentions or that additional wording could be used to emphasize the data-dependence of the Committee’s decision process. A couple of them noted that the removal of the “considerable time” phrase might be seen as signaling a significant shift in the stance of policy, potentially resulting in an unintended tightening of financial conditions. A couple of others thought that the current forward guidance might be read as suggesting an earlier date of liftoff than was likely to prove appropriate, given the outlook for inflation and the downside risks to the economy associated with the effective lower bound on interest rates. With regard to the pace of interest rate increases after the start of policy normalization, a number of participants thought that it could soon be helpful to clarify the Committee’s likely approach. It was noted that communication about post-liftoff policy would pose challenges given the inherent uncertainty of the economic and financial outlook and the Committee’s desire to retain flexibility to adjust policy in response to the incoming data. Most participants supported retaining the language in the statement indicating that the Committee anticipates that economic conditions may warrant keeping the target range for the federal funds rate below longer-run normal levels even after employment and inflation are near mandate-consistent levels. However, a couple of participants thought that the language should be amended in light of the prescriptions suggested by many monetary policy rules and the risks associated with keeping interest rates below their longer-run values for an extended period of time”.
In discussing economic developments abroad, participants pointed to a somewhat weaker economic outlook and increased downside risks in Europe, China, and Japan, as well as to the strengthening of the dollar over the period. It was observed that if foreign economic or financial conditions deteriorated further, U.S. economic growth over the medium term might be slower than currently expected. However, many participants saw the effects of recent developments on the domestic economy as likely to be quite limited. These participants suggested variously that the share of external trade in the U.S. economy is relatively small, that the effects of changes in the value of the dollar on net exports are modest, that shifts in the structure of U.S. trade and production over time may have reduced the effects on U.S. trade of developments like those seen of late, or that the slowdown in external demand would likely prove to be less severe than initially feared.
“The staff’s forecast for inflation this quarter and early next year was reduced in response to further declines in crude oil prices, but the forecast for inflation over the medium term was only a touch lower”
Ticker News
from Briefing.com
HEADLINE NEWS
Allergan (AGN): Pershing Square requests withdrawal of proxy statement
Cliffs Natural Resources (CLF) to pursue exit options for its Eastern Canadian operations
Colony Financial (CLNY) announces definitive agreement to acquire Cobalt Capital Industrial Real Estate for $1.6 bln; expected to achieve a stabilized unlevered net operating income yield of ~7% and produce an initial annualized return-on-equity of ~10%
Darden Restaurants (DRI) announced several leadership changes and strategic actions in order to increase the focus on restaurant operations; CFO Brad Richmond to retire
Dollar General (DG) may have to close 4K stores for approval for Family Dollar (FDO) deal, according to reports
Netflix (NFLX) to launch in Australia and New Zealand in March 2015
NVIDIA (NVDA) disclosed update on patent lawsuits; Samsung (SSNLF) filed a complaint against NVDA; alleges that NVDA infringed six patents
Williams (WMB) seeks FERC approval for 1.13 MMdth/Day Hillabee expansion project to Southeast U.S.
NHTSA confirms it is calling for a national recall of vehicles with certain driver’s side frontal air bags made by Takata
EARNINGS/GUIDANCE
Avon Products (AVP) revises management structure in support of turnaround plan; sees $30-35 mln charge in Q4
Constellium (CSTM) misses by $0.01, beats on revs
Jack In The Box (JACK) beats by $0.01, reports revs in-line; guides Q1 comps; FY15 EPS in-line; issues long-term goals
Lowe’s (LOW) beats by $0.01, reports revs in-line; raises FY15 EPS above consensus, revs above consensus
PetSmart (PETM) beats by $0.08, reports revs in-line; guides Q4 EPS in-line
J.M. Smucker (SJM) reports EPS in-line, revs in-line with preannouncement; reaffirms FY15 EPS guidance
Staples (SPLS) beats by $0.01, reports revs in-line; guides Q4 EPS in-line, revs in-line
Target (TGT) beats by $0.07, reports revs in-line; guides Q4 EPS within range, midpoint below consensus
Vipshop (VIPS) beats by $0.01, beats on revs; guides Q4 revs above consensus
ANALYST ACTIONS
Upgrades
CF Industries (CF) upgraded to Outperform from Neutral at Credit Suisse
Con Edison (ED) downgraded to Sell from Neutral at UBS
Mosaic (MOS) upgraded to Positive from Neutral at Susquehanna; tgt raised to $58 from $50
PetSmart (PETM) upgraded to Neutral from Underperform at BofA/Merrill
Potash (POT) upgraded to Outperform from Mkt Perform at Raymond James; tgt raised to $40 from $38.50
Downgrades
BlackBerry (BBRY) downgraded to Underweight from Equal-Weight at Morgan Stanley
Denbury Resources (DNR) downgraded to Hold at Wunderlich following analyst day; tgt lowered to $11
Total System (TSS) downgraded to Sell from Neutral at Goldman
Other
Home Depot (HD) target raised to $108 at RBC Capital Mkts
Medtronic (MDT) target raised to $81 at Needham; target raised to $78 at Oppenheimer
Whole Foods (WFM) target raised to $55 at Oppenheimer
Technical Analysis
DOW JONES INDUSTRIAL AVERAGE
17685.73 -2.09 (-0.01%)
Volume: 73,780,342 (below average of 86,233,366)
Range: 17,624.50 – 17,712.26
NASDAQ COMPOSITE
4675.71 -26.73 (-0.57%)
Volume: data not available (average of 490.5M)
Range: 4,655.72 – 4,696.20
S&P500 INDEX
2048.72 -3.08 (-0.15%)
Volume: 456.8M (below average of 510.6M)
Range: 2,040.37 – 2,052.14
Nothing has really changed in the technical picture, as things remain relatively the same. Today’s move is suggestive that yesterday’s “break out” is nothing but a temporary move, and we’re likely to take a pullback.
Consider that MACD divergence continues to persist.
Market Internals
NYSE:
Higher Volumes than the day before – 737.4M vs 730.8M
Decliners outpaced Advancers (adv/dec): 1179 / 1914
New Highs outpaced New Lows (highs/lows): 71 / 57
NASDAQ:
Lower Volumes than the day before – 1633.1M vs 1640.2M
Decliners outpaced Advancers (adv/dec): 776 / 1956
New Lows outpaced New Highs (highs/lows): 49 / 71
VOLATILITY S&P500 (VIX)
13.96 +0.10 (+0.72%)
Decliners outpaced Advancers by 1.98 on similar volumes than the day before (-0.50M -0.02%).
Internals are significantly more bearish today, but volumes remain unsupportive. But it’s still too early to call a clear trend and I’d say the market remains divergent.
I’ll be looking for bearish momentum to pick up with supportive volumes.
Treasury Bonds, Currencies & Commodities
from Briefing.com
Treasury Bonds
Yields Firm as FOMC Minutes Offer Little Surprise:
Treasuries booked modest losses as trade was whipped around in response to the October FOMC minutes.
While volatility picked up a bit following the release of the minutes, yields remained stuck in their recent ranges.
The complex held small losses into the cash open and pressed to its worst levels of the day shortly after the mixed housing starts (1009K actual v. 1025K expected) and building permits (1080K actual v. 1040K expected) data crossed the wires.
Some buying emerged as U.S. equities opened up in the red, but trade held in a tight range into the release of the FOMC minutes.
Key takeaways from the minutes included some members wanted to remove the ‘considerable time’ language and that the staff inflation forecast was reduced as a result of the decline in energy prices.
Maturities surged back to their respective flat lines in an initial response to the minutes, but quickly retreated back onto session lows into the cash close as the minutes were digested.
Up front, the 2Y tacked on +1.7bps to 0.517%. Action tested both the lower and upper bounds of the 0.500%/0.550% band that has held up over the past month, but remained unable to break out.
In the belly, the 5Y added +3bps to 1.639%. Resistance in the 1.650% region that is defended by the 50, 100, and 200 dma remains squarely in focus.
The 10Y gained +2.9bps to 2.351%. Action has held between 2.300%and 2.400% since the end of October.
The 30Y edged up +2.4bps to 3.067%. The yield on the long bond has been trapped between 3.000% and 3.100% for the past month.
A slightly steeper curve took hold as the 2-10-yr spread widened to 183.5bps.
2Yr 0.54 (+0.01), 5Yr 1.66 (+0.03), 10Yr 2.36 (+0.04), 30Yr 3.08 (+0.03)
2/10 Spread: 182bps (+3); 2/30 Spread: 254bps (+2)
Currencies
October FOMC Minutes Weigh on Greenback:
The Dollar Index presses session lows near 87.40 as traders digest the minutes from the October FOMC meeting.
The post-minutes selling has action probing the lower end of the 87.50/88.00 range that been in place the past two weeks.
The minutes were largely in-line with expectations with only some participants noting the ‘considerable time’ language should be removed.
Today’s choppy trade has been unable to break action out of the 87.50/88.00 region that has held up for the past two weeks.
EURUSD is +50 pips @ 1.2580 as trade remains on track to post its best close of November. The single currency spiked to the key 1.2600 area as the Fed minutes crossed the wires, but quickly pulled back from that level. All in all, today’s session has been rather uneventful. Eurozone data scheduled for tomorrow is heavy as Flash Manufacturing and Services PMI from across the region is released.
GBPUSD is +85 pips @ 1.5715 as action looks likely to end its five-day skid. Sterling has been bid since the Bank of England votes crossed the wires early this morning, and showed two members remained in favor of hiking rates. Britain’s retail sales and CBI Industrial Orders Expectations will be announced tomorrow.
USDCHF is -40 pips @ .9540 as trade slides to its lowest levels since the end of October. Traders have taken note of a Swiss gold referendum poll showing only 38% of would be votes are in favor of the initiative. EURCHF remains little changed on the day near 1.2010, holding just above the Swiss National Bank’s 1.2000 floor. Switzerland’s trade balance will be released tomorrow.
USDJPY is +80 pips @ 117.65 as action presses to a fresh seven-year high. While the Bank of Japan held policy steady overnight, action has been driven by the central bank lowering its inflation assessment to 1% (1.25% previous). This has increased speculation the BOJ will have launch an even bigger bazooka to reach its 2% target. Japan’s trade balance is due out tonight.
AUDUSD is -80 pips @ .8640 as trade dives to a one-week low. The hard currency remains under pressure as iron ore prices press to their lowest levels since June 2009. China’s HSBC Flash Manufacturing PMI will cross the wires this evening.
USDCAD is +20 pips @ 1.1315 as trade reverses to session lows. The pair saw some early buying after the U.S. Senate voted against the Keystone XL deal, but has surrendered most of those gains as traders price in the minutes. Canadian data set for tomorrow is limited to wholesale sales.
Commodities
Closing Commodities: Natural Gas Closed With Notable Gain
Natural gas surged higher today, but lost a little steam in afternoon trading action, closing 13 cents higher at $4.37/MMBtu
Crude oil futures rose as high as $75.40/barrel today, largely on OPEC speculation., but lost a little steam and closed 0.2% lower at $74.48/barrel
Separately, the EIA released its weekly storage report, which was bearish for oil prices
Dec gold lost $3 to $1194.10/oz, while Dec silver +1% at $16.33/oz
Energy price action
Crude oil fell 20 cents (-0.2%) to $74.48/barrel. Crude hit an overnight low of 73.92 before pushing higher; crude took another leg lower on inventory data that showed inventories had a build 2.608 mln vs consensus of a draw of 1.2 mln, but never reached the overnight low. Futures subsequently recovered, but again took a small hit on the FOMC minutes that were released at 14:00 ET. Crude continues to flirt with the all important support level ~75
Natural gas rose 12.8 cents (+XXX%) to $4.373/MMBtu. Nat gas has been pushing forward since yesterday, reaching a HoD of 4.508 around lunch, but futures have somewhat faded back toward support at 4.35.
Heating oil fell 2.22 cents (-0.9%) to $2.3591/gallon
RBOB was nearly flat on the day at $2.0431/gallon
Agricultural price action
Corn fell 9 cents (-2.4%) to $3.63/bushel
Wheat fell 10.50 cents (-1.9%) to $5.385/bushel
Soybeans fell 17.75 cents (-XXX%) to $10.055/bushel
Ethanol fell 21 cents (-9.8%) to $1.86/gallon
Sugar #11 rose 0.8% to 15.83 cents/lb
Metals price action
Gold fell $3.00 (-0.2%) to $1194.10/oz. Gold took a big leg lower following Oct building permits, hitting a LoD of 1173.9 before rebounding toward the 1195 level.
Silver rose 15.6 (+1%) to $16.33/oz. Silver mirrored the move in gold, hitting a LoD of 15.87 before also rebounding, touching a HoD of 16.535 before fading lower.
Copper rose 3.7 cents (+1.2%) to $3.039/lb
Preview: Thursday 20 Nov
Economic Data
Economic Data is listed as Consensus by default. Prior data will be given in brackets. If Consensus Data is not available, Prior data will be given without brackets. If Prior Data has been revised, the revised data will be given together with an indication whether it was an upward or downward revision.
Initial Claims – 08:30 : 285K (Prior 290K)
Continuing Claims – 08:30 : 2375K (Prior 2348K)
CPI – 08:30 : -0.1% (Prior 0.1%)
Core CPI – 08:30 : 0.1% (Prior 0.1%)
Existing Home Sales – 10:00 : 5.17M (Prior 5.17M)
Philadelphia Fed – 10:00 : 18.0 (Prior 20.7)
Leading Indicators – 10:00 : 0.6% (Prior 0.8%)
Natural Gas Inventories – 10:30
Corporate Earnings
BMO :
MBLY WBAI BBY BONT BRC BKE CRRC CYBX DLTR DCI GLOG DATE JKS KIRK LQDT MIK PDCO PERY SPB SMRT PLCE
AMC :
ASYS ARUN ADSK GME GPS GEOS HAYN INTU MRVL MENT NGVC RENN ROST SPLK TFM WAIR ZOES
Other Events of Interest
Fed/Treasury/Political Events
FOMC Member Tarullo – 07:45
Economic Events
Eurozone Flash Manufacturing & Services PMI – 03:00
UK Retail Sales – 04:30
Commentary
The impact of the FOMC minutes is unclear from today’s session, but the initial movement in the day suggests more underlying downward momentum. The next two days should give a better picture on how the FOMC minutes matter to the market.
I do think it’s right about time for us to take a pullback.
Direction for Thursday 20 Nov 2014: DOWN▼
Daily Directional Accuracy (from 14 May 2014): 86/129 (66.67%)
Weekly Directional Accuracy (from 16 May 2014): 14/25 (56.00%)